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Is dropping out of Medicaid a serious consideration for states?
Charles Duarte, administrator of Nevada's Division of Health Care Financing and Policy, says that in January 2010, state Gov. Jim Gibbons asked staff members to explore whether the state could drop out of the Medicaid program.
"The reason we did the report was to examine options," says Mr. Duarte. "Given Nevada's budget shortfall, which is one of the worst in the nation on a percentage basis, Medicaid was becoming unsustainable."
If this continued unchecked, says Mr. Duarte, Medicaid spending would continue to consume a larger and larger percentage of state revenue, supplanting funding for other important government services, such as K-12 education, higher education, and public safety.
However, Mr. Duarte says that Medicaid termination is "not a serious consideration for Nevada. Federal rules and court actions have severely curtailed states' ability to manage spending in Medicaid."
Limited ways to control spending
States have limited "tools" available to control spending in the near term, says Mr. Duarte. These include reductions in eligibility and provider reimbursements, service limitations, and elimination of "optional" services, says Mr. Duarte, but federal Maintenance of Effort requirements under the American Recovery and Reinvestment Act and the Patient Protection and Affordable Care Act (PPACA) have restricted states from limiting eligibility.
Eliminating optional services, such as personal care attendant services or prescription medications, tends to shift spending to other parts of the program, adds Mr. Duarte, while reimbursement reductions can sometimes lead to access issues.
"There are also potential legal and regulatory restrictions related to elimination of optional services or rate cuts that may have an impact," says Mr. Duarte. "The bottom line is that states are finding their ability to manage Medicaid more and more difficult."
Another concern that led Nevada to analyze the impact of Medicaid termination, says Mr. Duarte, was the fiscal impact of the PPACA. The most significant obstacle to dropping out of Medicaid, he says, "is the economic impact on the eligible recipients and the health care industry in the state. There would be no health safety net for hundreds of thousands of Nevadans and a significant loss of revenue to the health care industry. In other words, it would affect lives and livelihoods."
Mr. Duarte expects that some states will examine the possibility of global "block grants" for Medicaid. "However, those aren't the panacea some states hoped they would be," he says.
This leaves state Medicaid directors, says Mr. Duarte, "between a rock and a hard place."
Not fiscally possible
Judith Solomon, co-director of health policy at the Center on Budget and Policy Priorities in Washington, DC, says that Nevada, Wyoming, and Texas all analyzed the possibility of Medicaid termination. All three states, she says, "concluded that dropping out was not something the state could afford to do."
Dropping out of Medicaid would cause Texas to lose $15 billion in federal funding, and up to 2.6 million Texans could become uninsured, according to the December 2010 report prepared by the state's Health and Human Services Commission: Impact on Texas if Medicaid Is Eliminated.
"The others also found a detrimental impact," says Ms. Solomon, adding that state discussions over terminating Medicaid began largely as a result of a 2009 report from The Heritage Foundation in Washington, DC, Medicaid Meltdown: Dropping Medicaid Could Save States $1 Trillion.
"The report suggested that states could drop out, use the state funds spent on Medicaid to address the needs of people with disabilities and seniors, and allow other individuals to move into the insurance exchanges to be set up by states," says Ms. Solomon. "There has been a debate about whether or not that is even feasible, and we think it's not."
Ms. Solomon says that the PPACA is clear that individuals with incomes below the poverty line cannot receive premium credits for the insurance exchanges, with the exception of legal immigrants who have been in the country for less than five years and can't get Medicaid.
"That was one problem that states encountered, and that is . . . more of a long-term issue for 2014," she says. "States have also looked at dropping out of Medicaid in the short-term. Wyoming took it down almost to the beneficiary level in examining the impact of dropping out in its report."
Wyoming's analysis, says Ms. Solomon, looked at individuals receiving care in various institutional settings and what it would mean to pull them out of Medicaid. "They found that this could not be done without significant harm, not only to their overall budget, but also to the health of their residents," she says.
Michael Sparer, PhD, JD, department chair and professor of health policy and management at Columbia University's Mailman School of Public Health in New York City, says that if states want to get off Medicaid, they face serious fiscal and political obstacles.
"Certainly, the key fiscal issue is the potential loss of Federal Financial Participation [FFP] dollars, which for many states would be a huge and difficult budget blow," says Dr. Sparer.
What some state officials are arguing or suggesting, says Dr. Sparer, is that they could potentially make up for some of those dollars if they could transfer their beneficiaries into the new insurance exchanges. The argument is that these beneficiaries would receive some subsidies anyway, perhaps full subsidies, depending on their income, explains Dr. Sparer.
"Number one, it is not clear if states would be able to do that," says Dr. Sparer. "It is simply not clear if Medicaid beneficiaries would be eligible for federal subsidies in the exchanges, if a state eliminated its Medicaid program."
Secondly, even if states were able to do this, there is still the issue of long-term care to consider, says Dr. Sparer. "A big chunk of state Medicaid expenditures these days, and an important role for state Medicaid programs, has to do with being a safety net for the nation's long-term care system," says Sparer. "You couldn't make up for that money with the exchanges."
For this reason, Dr. Sparer says that the fiscal losses of FFP dollars are "a huge obstacle."
There is also a set of political obstacles, adds Dr. Sparer. "Clearly, as much as the provider community often finds fault with the Medicaid program, if tomorrow all of those Medicaid beneficiaries were suddenly uninsured, there would be strong concern in the provider community for how to make up for that revenue loss," he says. Dr. Sparer adds that there would also be a significant political backlash from the provider community and advocates for the beneficiaries.
Despite these obstacles, Dr. Sparer says that there are policymakers in some states who would definitely like to get their state out of Medicaid, and they are looking into the pros and cons of doing so. "They are talking about the need for states to get away from the overburdening, micromanaging federal oversight, and see this as a way to do it," he says.
Even those who are in favor of dropping out of Medicaid generally have a clear understanding of the obstacles involved, adds Dr. Sparer. "They are now looking to see if they can come up with strategies to counteract those obstacles," he says. "Do I think at the end of the day states are going to do it? At this point, I would say no. I think that the obstacles are too large."